At the recent 2018 World Economic Forum in Davos, Switzerland, key U.S. Administration officials tasked with carrying out President Trump’s trade policy reiterated the U.S. government’s economic policy focus on intensifying measures to prevent unfair trading practices.1
This follows from President Trump’s campaign promise to address and fix U.S. trade imbalances with its trade partners, and, catalyzed by enforcement initiatives launched in 2017, made it the busiest year for trade enforcement cases brought against alleged violators since 2001.2
As the U.S. government made prosecution of U.S. trade law violations a high priority, Wisconsin companies and their business partners need to stay abreast of actions taken by the government to carry out this policy and the compliance impact, if any, these enforcement actions may have on their businesses.
Ngosong Fonkem, West Virginia University College of Law 2011 (JD, MBA) and Tulane Law School 2012 (LLM), is a senior advisor at Addison-Clifton LLC, Milwaukee, where he assists U.S. and foreign companies with day-to-day compliance with U.S. trade laws and related audits, investigations, intervention, and civil enforcement proceedings, and with conducting business in Asia.
Policy Shift Signals: Executive Orders 13785 and 13786
The first of a series of actions signaling President Trump Administration’s intentions to strictly enforce U.S. trade laws was evidenced by two executive orders issued on March 31, 2017:
Executive Order 13785
Executive Order 13785 (EO 13785), also known as Presidential Executive Order on Establishing Enhanced Collection and Enforcement of Antidumping and Countervailing Duties and Violations of Trade and Customs Laws, directs the U.S. Department of Homeland Security (USDHS) – through U.S. Customs and Border Protection (CBP) in consultation with other agencies – to develop and implement a plan to:
1) enhance the collection of unpaid duties and fees owed to the U.S. Government, and
2) ensure the protection of intellectual property rights by combating the importation of counterfeit goods.
Executive Order 13786
Executive Order 13786 (EO13786), also known as Presidential Executive Order Regarding the Omnibus Report on Significant Trade Deficits, directs the Secretary of Commerce (USDOC) and the U.S. Trade Representative (USTR) – in consultation with the secretaries of State Department, Treasury, Defense, Agriculture, and USDHC – to prepare a country-country, product-product report identifying any significant trading deficits, including whether alleged unfair or discriminatory trade practices contribute to such trade deficits.
Types of Trade Remedies Available to the U.S. Government
Although the two executive orders indicate the U.S. government’s intent to strictly enforce U.S. trade laws, they do not, however, specify what legal mechanism the U.S. government shall use if it concludes that the unfair or discriminatory practices of a major trading partner contributed to U.S. trade deficits or that certain imports or trade practices may be impairing U.S. national security.
Current U.S. laws, however, provide mechanisms that the U.S. government and impacted entities can use to seek redress against a foreign competitor for alleged unfair trade practices. Although most trade cases are typically initiated by impacted companies, the current administration has stated that it will direct the USTR and USDOC to “self-initiate” enforcement actions as part of its policy focus.
The trade remedies currently in place are:
Section 337 of the Tariff Act of 1930
Section 337 investigations before the United States International Trade Commission (USITC) and USDOC provide a private right of action for U.S. companies or U.S. subsidiaries of foreign companies to challenge the importation of goods based on the alleged infringement of intellectual property rights or other unfair acts in the importation of goods.
The essential elements of a Section 337 violation are:
1) an unfair act or unfair method of competition;
2) an importation, sale for importation, or sale after importation of the accused product;
3) a domestic industry; and
4) in the case of investigations not involving a federally registered intellectual property right, injury resulting from the unfair act.
The benefits of a Section 337 action are an import ban on infringing products and enforceable cease-and-desist orders barring the domestic sale and distribution of products found to have been imported in violation of Section 337.
The reach of Section 337 also extends beyond the protection of intellectual property rights, creating a private right of action to prevent the importation – or sale in the United States after importation – of goods that involve “unfair” methods of competition, including trade secret misrepresentation, mislabeling, false advertising, or false representation of origin.
Antidumping and Countervailing Duty Investigations under the Tariff Act of 1930
The Antidumping and Countervailing Duties (AD/CVD) laws impose duties on imports into the U.S. of products that are priced below fair market value and that materially injure the domestic industry producing the same or similar products. The countervailing duty laws are designed to offset foreign government subsidies that similarly cause material injury. The benefits of AD/CVD investigations and reviews are similar to Section 337 type cases.
Section 301 of the Trade Act of 1974
Section 301 provides the U.S. government with the authority to enforce trade agreements, resolve trade disputes, and open foreign markets to U.S. goods and services. It is the principal statutory authority under which the U.S. government may impose trade sanctions on foreign countries that either violate trade agreements or engage in other unfair trade practices.
When negotiations to remove the offending trade practice fail, the U.S. government may take actions to raise import duties on the foreign country’s products as a means to rebalance lost concessions. The list of products on which the U.S. may raises import duties is called a “retaliation list.” The U.S. government carefully selects products included on a retaliation list to minimize any adverse impact on U.S. consumers, firms, and workers.
Section 232 of the Trade Expansion Act of 1962
Section 232 gives the U.S. government the authority to conduct comprehensive investigations to determine the effects of any imported product on U.S. national security. These investigations may include:
- domestic production needed for projected national defense requirements;
- domestic industry’s capacity to meet those requirements;
- related human and material resources;
- the importation of goods in terms of their quantities and use;
- the close relation of national economic welfare to U.S. national security;
- loss of skills or investment, substantial unemployment, and decrease in government revenue; and
- the impact of foreign competition on specific domestic industries and the impact of displacement of any domestic products by excessive imports.
Section 201 of Trade Act of 1974
Section 201 provides U.S. companies that are seriously injured or threatened with serious injury due to increased imports to petition the USITC for import relief.
The criteria for import relief under section 201 are based on those prescribed in Article XIX of the General Agreement on Tariff and Trade (GATT), as further defined in the World Trade Organization (WTO) Agreement on Safeguards. Thus, Section 201 provides the legal framework under U.S. law that the president invokes under Article XIX.
China Safeguard Investigations Under Section 421 of the Trade Act of 1974
Section 421 authorizes the USITC to determine whether a product from China is being imported into the U.S. in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products. If the USITC makes an affirmative determination, it proposes a remedy. The USITC then sends its report to the president and the USTR. The president makes the final remedy decision.
What This Policy Shift Means To You
The gamut of trade enforcement actions either initiated by U.S. companies or self-initiated by the current U.S. administration indicate the administration’s seriousness in carrying out this policy.
Based on cases initiated so far, the categories of products typically subject to trade enforcement actions includes products made from:
- steel, aluminum and copper,
- other metals and metal products,
- machinery products,
- food products,
- solar panel products,
- paper products,
- furniture, and
- washing machines.
Considering these facts, Wisconsin companies need to understand the compliance impact, if any, that these enforcement actions will have on their businesses.
Similarly, companies whose businesses are impacted by unfair trade competition may now find it easier to either initiate or petition the U.S. government to initiate a trade case with increased likelihood of success.
Trade Compliance Issues
The ingrained nature of this policy shift raises several trade compliance issues. Chief among them are to put in place procedures and controls to monitor the myriad of trade cases being initiated and their outcomes, and develop a clear and detailed work plan to manage foreseeable compliance risks.
Finally, if a company becomes aware that they may be at risk of an enforcement action, ensure that all necessary actions are taken to meet and exceed measures required by the various U.S. export and import agencies, including voluntary disclosures.
1 “At President Trump’s direction, we have told American businesses that we will be more enforcement minded than any recent administration, while also remaining committed to a fair and transparent process that is professionally and impartially implemented,” Commerce Secretary Wilbur Ross said in an emailed statement. “They know we will stand with American workers in the face of unfair trade practices,” in “America’s trade wars are heating up, as more U.S. companies sue for relief,” Washington Post, Dec. 25, 2017.
2 See “In Trump era, a surge in companies filing trade complaints against foreign rivals,” Seattle Times, Dec. 27, 2017.